Rational, fact-based. This is about having a fact-based dialogue based on reasoning rather than bias and heat. In a spirit of learning from each other, but never making the other wrong for different beliefs nor viewpoint. Where possible, I'll use your input to add to or correct the information on the site. If there is something you see as upsetting or with which you strongly disagree, link into the related website and read the piece written about that (at the top).

Wednesday, November 16, 2011

Income Disparity - The Real Reason

Even our President appears to blame the rich for incomes of the non-rich not rising. I wonder if he is just not being advised of the natural economics that caused this?

In a free market, competition and demand will determine the prices (including the price for services).

When we had a distinct advantage where we (the West) had the industrialization advantage and knew how to market and distribute goods, we prospered - because we were more productive. We had great advantage for many years.

But eventually other countries began to integrate the technology that had been developed, to become more organized for business and they began to compete. Of course, their wages were relatively low. Therefore, the business went to them - they were simply more competitive in price.

Gradually over the last 30 years, the value of what the West could offer was less and less, as we could no longer compete. So there was a downward influence on wages. Actually, the wages driven down were at the lower end, where other countries could compete. High skill manufacturing jobs dropped 17%, while low skill manufacturing jobs declined 34%. But these other countries, so far, have not competed as much in the higher-value knowledge areas - those wages have risen, creating an even wider income disparity.

Meanwhile, quite naturally and understandably, the wealth of the rich compounded basically because they were risking and investing - and professionals and knowledge workers had their compensation increase, while all the other wages did not.

While this is strictly economics, people have blamed the rich for it. But clearly this is "wrong cause", where the cause is neither logically or correctly identified.

The solution does not lie in taking wealth away from others, but in empowering as many as possible so that there are more people contributing and are in the higher value areas - and increasing the size of the pie, rather than just splitting it differently. And the only way to do that is to educate people in the higher skill areas and direct those resources to higher value areas, as we will not be competitive with the lower skill items that other countries can do more economically.

Hopefully we can use rational thinking and analysis to direct our efforts - and stop the irrational and political nonsense. What do you think?